...and how to fix it
Coverage of the unfolding crisis
Wednesday, August 17, 2011
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by Louise Bowman
Following their two-hour meeting yesterday, Angela Merkel and Nicolas Sarkozy refused to countenance either an expansion of the European Financial Stability Facility (EFSF) beyond its proposed 440 billion or the issuance of jointly guaranteed euro sovereign bonds. Europes political leaders remain reluctant to accept that the only way to resolve the regions funding problems is for the core countries to shoulder the burden of support for the periphery. Eventual expansion of the EFSF beyond its proposed and woefully inadequate 440 billion is seen as inevitable by most in the market. But the implications of such an increase on its guarantee structure worry national leaders. A sharp increase in the EFSF guarantee commitments of the seven triple-A rated eurozone members will weigh heavily on their debt-to-GDP ratios, threatening their ratings.
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